Podcast Show Notes:

Our This Month In Banking (TMIB) podcast highlights significant news and events in banking and our hosts’ take on them, along with interviews with industry thought leaders. TMIB will be available on the last Wednesday of every month here, on Stitcher, Soundcloud, and iTunes for your listening enjoyment. Join us on your commute or at your desk.

Topic 1: Small Banks Thrive in an Economies of Scale Era

Start time 5:50

Profitability is under a lot of pressure for small institutions — expenses are up and yields on loans are down. But some are handling that pressure better than others, as American Banker’s recently released ranking of publicly traded banks and thrifts with less than $2 billion of assets shows. The top 200 publicly traded banks with less than $2B of total assets had a three year ROE average of 10.87%, with the top 10 ranging from 15%-20%. BofA was 4.4%, Wells Fargo was 12.9%, Citi was 6.2%.

In the current low interest rate environment, many smaller banks are managing their efficiency ratios through cost-cutting. What are the keys to community bank profitability, when every investment banker pitches scale as the Holy Grail?

Topic 2: Craft Beers of Banking

Start time 18:15

Some small banks and credit unions are building their brands using the same marketing strategies as craft breweries, focusing on being small, local and authentic. For example, Trailhead Federal Credit Union in Portland, Oregon markets itself as “anti-corporate” and seeks to attract members who are frustrated with the experience of banking at megabanks. The credit union changed its name in an effort to turn around seven straight years of declining membership. Since the name change, membership has increased about 35% and the average age of its members at its newest branch is 34 years old. Trailhead positions itself as a local, independent boutique where small size is an advantage and sponsors events like cleanup of a local park as well as “bank and brew” beer tastings.

Are these boutique marketing strategies viable for the long term?

Topic 3: Big Banks are Winning the Battle for Millennials

Start time 26:41

Millennials are the fastest-growing customer segment for banks, and financial institutions of all sizes are working hard to attract and retain their business. That means investing in technology: mobile check deposit, peer-to-peer payment services, features like fingerprint recognition, and mobile and online banking tools that speed up and take the pain out of day-to-day banking transactions. For big banks, at least, the efforts seem to be paying off and are leading the way in appealing to a youthful demographic. The $157 billion-asset Ally Financial, for example, has retooled its marketing to appeal to young adults, and more than one-third of its customers are now millennials, outnumbering all other age groups.

How do community banks succeed with this large and burgeoning demographic?

Topic 4: Higher CRE Capital Requirements

Start time 34:40

Many institutions stacked their balance sheets with CRE loans in recent years, particularly in areas such as multifamily lending. Now there is evidence regulators may soon require those banks to maintain higher capital ratios. Suffolk Bancorp in Riverhead, NY, said in its earnings release that it expects the OCC to require its bank to maintain a 12% total risk-based capital ratio, commonly referred to an IMCR, or individual minimum capital requirement. Howard Bluver, the $2.3 billion-asset company’s chief executive, said as a result, the bank will “temporarily pull back” from CRE lending, despite having ample capital.

Citizens Bank has a relatively large commercial real estate portfolio, and by our calculations is approaching 300% of capital, which excludes owner-occupied CRE. How do community banks mitigate risk from CRE concentrations and is the Suffolk IMCR requirement a concern for CRE lenders?

Watch for episode 6 of This Month in Banking to be released on Wednesday, June 29, 2016 and a new episode on the last Wednesday of every month.